We've all seen the photos and witnessed the moment. The founders of companies like Twitter or Facebook, standing on the platform as they ring the bell to open the market -- and open the door to a new world of being a publicly traded company.
For anyone who has reached this incredible milestone, the initial public offering (IPO) is one of the most celebrated accomplishments for any company. But behind the scenes of the glitz, glamour and celebration, taking your company public is no easy feat -- and certainly does not happen overnight. In fact, many of the best and brightest founders build their business from the very early stages with their sights set on achieving this moment. It can be upwards of ten years or more before they reach that platform and ring the bell. The media and market may paint a rosy picture of the experience -- and it is great! -- but make no mistake, it's a lot of hard work.
The process typically starts from the very early stages of the company. A talented and experienced founder will set the business on course for the various outcomes that are possible -- acquisition, profitability, growth, and of course, companies that succeed are well coached from the start. Founders interested in taking their company public should try to do everything right from the beginning of their startup launch so that the company is ready when the time comes. But for those who may not have prepared from the beginning, all is not lost. Companies can adjust at a later-stage and successfully steer the business towards IPO as well.
Regardless of where a company is in its lifecycle, an IPO is something that is talked about long before it is actually initiated. The process begins with ensuring that the business is aligned with investor expectations. Companies that go public need to be ready for it long before it can happen, revenue and the direction of the business need to be predictable and a strong senior level management team needs to be put in place. Perceived risks need to be addressed. If you do somehow manage to go public without everything in place, you'll be destroyed afterward.
The IPO process is more intense and challenging than raising private money, since with public investment there are extensive regulations, and strong rules around things like behavior and revenue recognition practices. While raising private money can involve a PowerPoint presentation and a short due diligence process, going public requires several years of audited financial statements and the preparation and filing of a registration statement (aka, the S-1) that includes a long and detailed history of the company, its business and risks, as well as extensive disclosures about the company's management and its shareholders.
The IPO preparation process often takes altogether about six months, with two months of pre-planning and approximately four months to draft, file and obtain SEC approval of the S-1 registration statement and complete a "roadshow" where the company meets with investors to offer its stock for sale. During this time, everyone in the company works to get the company and its processes in order. The CEO drives the process, with support from legal and finance. CTOs handle technology, sales and marketing work on go-to-market strategy, CFOs prepare the financial disclosures and increase financial controls and procedures, and so on. New hires may be put in place to round out or strengthen teams, company processes may be adjusted for additional control and transparency -- whatever it takes to ensure the company is in the most solid position before it reaches the public market.
The IPO process then begins with the selection of the investment bankers, who are responsible for overseeing and underwriting the deal. There's usually a 'bake off,' where multiple bankers present their view of the company and how they would market it to investors. From here, the company selects 4-5 banks (a 'banking syndicate') that will work together to underwrite the IPO, including one that will serve as the primary IPO underwriter. Together, the company, bankers, attorneys and auditors draft the S-1, filing the first draft with the SEC. The drafting process takes about four weeks. Once the SEC provides its initial comments, usually 30 days from the first filing, the company responds to the comments and files amendments to the S-1 until the SEC tells the company that it has no further comments to the S-1. Setting the preliminary pricing range, printing preliminary prospectuses, and other work comes thereafter. Then, it's back-to-back meetings on the 'roadshow,' which takes the CEO and CFO around the country (and often overseas) to obtain commitments to buy the company's shares.
The roadshow typically ends the day before the company intends to begin trading. There are meetings and still additional work as the company and underwriters meet to discuss and agree upon the price at which the company will sell the IPO shares, allocation to investors and other details. Final effectiveness of the S-1 is obtained from the SEC. The next morning, when the market opens, the company 'rings the bell,' and its stock begins trading.
The energy on the market floor is one of the most amazing experiences in business -- especially if the IPO is successful. It's not just the founders and senior management who taste the victory and celebrate, but the company as a whole. It's a moving event - a career-defining event - for everyone. Of course, big celebrations follow, and an enormous amount of media and industry attention comes. Suddenly you're invited to things you've never been invited to before; major media outlets flood PR teams with requests. To say it's exhilarating is an understatement. You are truly on top of the world.
As exciting as it is, the amount of time, energy and preparation involved cannot be underestimated. While it might sound exciting to hit the streets and talk about your company, it is also exhausting. And like any great party, it all must end, and it's back to the grind the very next day -- but this time as a public company. A whole new reality sets in as everyone from the CEO to management and employees must instantly align with the new operational structure, quarterly reporting and fiscal and operational discipline of being a publicly traded company under the scrutiny of investors and analysts. There is more internal reporting and external disclosure, and all kinds of new rules and regulations. The tone of the company changes, leaders need to be stronger and better. Everything becomes more serious. The lens on everything the company does is magnified.
But as in the course of striving for any great goal or achievement, the risk of failure is something you can't think about. Of course you know there will be obstacles and challenges -- you may find that the market doesn't like you or bankers don't support you. Markets can turn, industries can change, analysts may have negative things to say about the company. There isn't any way to know, and in many cases, no way to prepare. So, you navigate; you have to find your way through it. Failure is not an option.
For founders and executives who are going through an IPO, about to go through it or that someday dream of doing so, the best advice to make the process easier and more successful is to build a solid business from the start -- and continue building a solid business every single day (more on that later). Make this the goal from the beginning and the IPO, acquisition or other victory will be all the more possible.